Royal Caribbean Cruises Ltd.
) posted mixed second-quarter 2014 results with earnings beating
the Zacks Consensus Estimate but revenues missing the same. Shares
of the cruise operator jumped 7.70% as the company upped its
earnings guidance for 2014 on the back of strong booking trends and
Adjusted earnings of 66 cents per share comfortably beat the Zacks
Consensus Estimate of 53 cents by 24.5%. Further, earnings came
much ahead of the prior-year figure of 15 cents, driven primarily
by higher year-over-year revenues. Further, earnings were higher
than management's expectation 45 to 55 cents. Adjusted earnings in
the quarter exclude costs associated with certain initiatives
undertaken by the company.
Royal Caribbean Cruises Ltd - Earnings Surprise
Total revenue in the quarter increased 5.2% year over year to $1.98
billion, due to higher passenger ticket revenues as well as
increased onboard spending. However, revenues missed the Zacks
Consensus Estimate of $1.99 billion by 0.5% which was due in part
to higher cruise operating expenses.
On a constant currency basis, net yields increased 2.6% year over
year. This was higher than the company's guidance driven by strong
close-in booking trends for European and China sailings despite
continued softness in the Caribbean business. Yields were up in
double digits in Europe and China which offset the Caribbean's
Passenger ticket revenues were up 6.5% year over year to $1.46
billion. Onboard and other revenues increased 1.7% year over year
to $524.9 million, reflecting onboard revenue management
initiatives as well as benefits availed from fleet upgrades.
Net cruise costs (NCC), excluding fuel, decreased 4.7% on a
constant currency basis, better than 1.3% increase in the last
quarter. Net cruise costs were 220 basis points lower than the
mid-point of the company's expected range.
Total cruise operating expenses increased approximately 0.5% year
over year to $1.3 billion mainly due to a rise in onboard and other
expenses, increased commissions, transportation and other costs,
increased fuel costs and a rise in food expenses.
Robust Bookings to Drive 2014, Earnings Guidance
The company raised its earnings guidance for 2014 and expects it in
the range of $3.40 to $3.50 per share compared with the previous
expectation of $3.25 to $3.45. This comes in the wake of strong
Despite pressures in Caribbean sailings, the company has a positive
outlook for the coming quarters on solid demand for European and
Chinese sailings. It expects double-digit yield improvement in both
the itineraries in 2014.
On a constant currency basis, the company expects net yields to
increase in the range of 2.0% to 3.0% in 2014. Despite inflationary
pressure, rising insurance costs and continued investments in
product and marketing; net cruise costs, excluding fuel, are
expected to be flat to slightly down in 2014.
Third-Quarter 2014 Guidance
The company expects earnings per share to be roughly $2.20 per
share in the third quarter, much higher than $1.71 reported in the
The company expects net yields on a constant currency basis to
increase 4.0% in the third quarter of 2014. Further, net cruise
costs excluding fuel are expected to be flat to up 1%.
Royal Caribbean also announced a plan today called the
Double-Double Program, which aims to double 2014 earnings per share
by 2017 and bring the company's return on capital to double-digit
It seems that Royal Caribbean has started recovering from negative
publicity after a series of mishaps, including virus outbreaks and
engine fires. Robust bookings trends, especially in China and
Europe, drove Royal Caribbean's strong results.
Going forward, the company is expected to deliver solid results on
strong booking trends and profitability initiatives. Also, efforts
to counter volatility in fuel prices would improve margins.
Royal Caribbean currently sports a Zacks Rank #1 (Strong Buy).
Other stocks in the same sector that can be considered include Vail
Resorts Inc. (
), Dover Motorsports Inc. (
) and International Speedway Corp. (
). All these stocks have a Zacks Rank #2 (Buy).
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